By David Bennett, Senior Editor
There are few Years more turbulent in the history of the convenience store industry than 1990. Just prior, the total number of c-stores had peaked at 83,000 in the late 1980s. The market was overcrowded and big chains were cutting excessive inventory. The number of locations fell to 71,200 in the next few years. Over this period, industry profits dropped a staggering 75%.
The economic outlook would only get dicer as the Persian Gulf War of 1990–91 kept many customers at home, reduced sales at stores surrounding military bases, and caused a gasoline price war among c-stores and major oil companies that squeezed profit margins even more.
It was in the middle of this that Convenience Store Decisions was born. That wasn’t the only story, however.
The top two convenience store operators—Southland Corp. and Circle K filed for Chapter 11 protection in 1990. The following year, they were joined by National Convenience Stores (NCS) Inc.—third of the Big Three.
However, you can’t keep a vibrant industry down forever. Fast foods and self-service gasoline pumps were viewed as growth segments for store operators, which turned out to be true. “Smokes and Cokes” have lost considerable ground to e-cigarettes and energy drinks, which now complement traditional categories. The U.S. c-store count reached 151,282 stores by the end of 2013, an increase of 1.4%—or 2,062 stores over the previous year, according to the National Association of Convenience Stores (NACS).
In fact, c-stores last year made up a third of all U.S. retail outlets nationwide. Texas—home to the new and improved Southland, Circle K and NCS—led the pack with 15,191locations, compared to 14,920 Lone Star stores operating the previous year.
In 25 years, the c-store industry indeed has faced its share of challenges and has learned and evolved along the way. However, as the economy changes, more Americans retire, Millennials seek alternate forms of transportation, technology advances, and everyone balances the choice of eating healthy without sacrificing taste, the industry must continue to remain flexible to better address the changing times.
Going forward, some major issues that will force operators to develop even more effective business strategies are the fuel industry, a quality workforce, back-office upgrades, and finally, the weather.
The U.S. price of gas has been rising steeply since 1990’s average price of $1.10. In May 2014, the retail price for one gallon of regular gasoline was $3.67, compared to $1.35 in 2002, for instance.
Still, gas and diesel are prime drivers for c-store sales.
C-store and gas station retailers conduct an average 160 million transactions each day, complete more than 33 million fill-ups and sell more than 80% of the fuel consumed in the U.S., according to NACS. C-stores still make a profit from fuel, but more factors have surfaced to guarantee that comfortable margins derived from fuel sales are anything but guaranteed anymore.
As proof, look no further than Milwaukee, where Harley-Davidson last month unveiled its first electric motorcycle. Industry studies show that over the next 26 years, consumers will be driving much more fuel efficient vehicles—dropping their energy consumption per mile by an estimated 42%.
That’s not counting a new bipartisan bill in Congress would raise the federal gas tax by 12 cents per gallon to upgrade interstate highways.
David Nelson, a professor of economics at Western Washington University, said as Americans get older, they drive less, and finally, Millennials’ propensity for public transportation and staying in closer proximity to their own social circles could be a deciding factor regarding whether future fuel sales decline even further.
“Technology has reduced the desire of young people to drive,” Nelson said.
Hockey great Wayne Gretzky once said, “I skate to where the puck will be, not where it’s been.”
Some experts would say those c-stores that continue to operate the same way they’ve done for years are probably skating on thin ice by not being proactive in recognizing operational trends and having the capabilities to compete.
One of the primary influencers on containing operating costs in the last 25 years has been continuing developments in backroom efficiency. Today, operators have the ability to maintain price book and inventory at the store level and/or at the home office, which is just a very small slice of the data that c-stores must track to ensure their businesses run more efficiently.
Savvy operators use automation in the form of handheld scanning of incoming deliveries to stores, audits of scanned inventory counts, and activating and deactivating promotions.
Mary Lyden, vice president and chief information officer for Brecksville, Ohio-based truenorth LLC, in 2013 added ADD eStore-brand software to its 110 stores due to the labor involved in reporting crucial balancing of thousands of receipts and sales of products. Truenorth had employed a team of auditors to reconcile the data.
The technological upgrade allowed the company to cut its in-house staff of auditors in half, and remaining auditors taught the system to upper-level managers, and managers then taught other mangers, making for a tighter backroom organization.
“A lot of doors opened when we did the retooling,” Lyden said.
Wages are always a consideration for c-stores when the company is hiring staff, and operators watch federal minimum wage mandates and other laws when developing strategies to combat workforce turnover, including dealing with issues like healthcare reform.
For example, Seattle council members unanimously passed an ordinance recently that gradually increases the minimum wage in the city to $15, make it the highest rate in the nation. Massachusetts quickly followed suit at the state level with an $11-per-hour mandate.
While salaries and benefits are a big part of operating costs, hiring quality workers who can deal with a demanding customer base and complex operating components are just as important, according to some industry experts.
Mel Kleiman, founder and president of Humetrics, a consulting firm involved recruiting, hiring and retaining employees, said while the c-store industry has done a better job in vetting general employees that it hires, it hasn’t fielded a comprehensive quality workforce because some companies in the industry haven’t risen above the notion that employees are just another resource. On the other hand, certain c-stores are spending to ensure the retention of valued employees. “Those companies of the world—the Kwik Trips of the world, the Sheetz of the world, the Buc-ee’s of the world—recognize that people are the differentiating point, so they invest in their people, and they invest to ensure they have good leadership,” Kleiman said.
Federal minimum wage stands at $7.25 today, about double what it was when CSD launched in 1990.
Here is the rate through the years:
• 1990 minimum wage = $3.80
• 1991 minimum wage = $4.25
• 1996 minimum wage = $4.75
• 1997 minimum wage = $5.15
• 2007 minimum wage = $5.85
• 2008 minimum wage = $6.55
• 2009 minimum wage = $7.25
Source U.S. Department of Labor
Sometimes, the weather can play havoc over a season—where business is impacted so significantly—that companies mention it by name in year-end financial statements. Last winter, it was the “polar vortex.”
Freezing temperatures and mountains of snow in the first three months of 2014 kept shoppers indoors, especially in areas of the Great Lakes and Midwest. The chilling cold, snow and ice that gripped much of the country—affecting about 200 million people—brought about the biggest economic disruption delivered by the weather since Superstorm Sandy slammed the East Coast in 2012.
Here’s a sampling of cities that dug themselves out from record snowfalls last winter:
• Chicago, third snowiest, 80 inches (record: 89.7 inches, 1978-1979)
• Cincinnati, fourth snowiest, 47.1 inches (record: 53.9 inches, 1977 – 1978)
• Detroit, second snowiest, 90.7 inches (record: 93.6 inches 1880-1881)
• Erie, Pa., sixth snowiest, 130.4 inches (record 149.1 inches 2000-2001)
• Indianapolis, snowiest, 55.7 inches (previous record 51 inches 1981-1982)
• Philadelphia, second snowiest, 67.6 inches (record: 78.7 inches, 2009-2010)
• Toledo, Ohio, snowiest, 84.8-inches (previous record: 73.1 inches in 1977-1978)
Source NOAA’s National Weather Service